Asset Management Letter

Boyd Varty, a wildlife tracker and author from South Africa, recently wrote a book, “Cathedral of the Wild”, where he regaled the reader with the “Art of Tracking”. To paraphrase him, tracking an animal requires a relentless attentiveness to everything around you, stepping into the unknown to pick up clues, and a discipline within the uncertainty. The parallel to what portfolio managers do in their day-to-day pursuit of value in the marketplace is quite appropriate, in our view.

We bring the metaphor of tracking up for a reason. In contrast to 2017, it is natural for the market to go down, and when it does, value presents itself. When the Federal Reserve holds interest rates down the environment doesn’t react normally and a false sense of security can ensue. In an artificial setting, a passive index with the lowest costs based on market capitalization would probably be the investment du jour. However, in a natural setting, one could encounter risk and uncertainty that causes irreparable harm. The generic investment in a basket of stocks and the safe harbor of a well-trodden path have similarities. Uncertainty promotes discipline, whereas security can breed complacency. It’s our job, in an unnatural environment, to remind our clients about the need for discipline and try to prepare them for potential dangers lurking ahead.

Given the media’s tendency to publish a story and follow the ratings, we feel there is a logical basis for groupthink inherent to journalism. To that end, we understand the financial media’s attention to the passive versus active debate and the popular conclusion that the S&P 500 Index outperforms the average active manager over the long term. However, data shows that managers with low fees, low turnover, proper incentives, an experienced team, and a differentiated portfolio have historically been more likely to outperform both the index and the average active manager. For instance, funds with low fees and high investment in their own funds have outperformed in 89% of all rolling ten-year periods. Of course, this same herd mentality couldn’t be wrong three times in the past twenty years. There was great safety in the all-growth, all technology horde in 1999, right? And, of course, that same group didn’t misguide anyone in 2006/07 with the collective fact that real estate had never ever declined nationwide. These examples of the downside of herding are not meant to cause mental discomfort. They are meant to foster reflection and stillness. It is in this attentive state when trackers are most attuned to their environment and most aware. The noise of the market can remove one from this stillness and is what leads to the investing style of “passive, passive, passive”, in our opinion. We think a relentless pursuit, like investing, requires a well-planned strategy and active tracking of the market’s animal spirits.

On a topical note, our active fixed income managers outperformed their benchmark in the first quarter but more importantly continue to outperform the aggregate bond index over the five and ten year time frame on a risk adjusted basis. The core of our active portfolio managers outperform on a risk and return basis over the past ten years or since inception. Some may slip over the shorter time frame, but over the long term and a full market cycle, they tend to outperform. Finally, and most relevant to this point in time is that active and passive management outperformance moves in cycles like all natural patterns. Historically, active outperforms in negative and low return environments and with the S&P 500 more than doubling in the last seven years, and also not correcting by more than 20%, the setting seems better suited for active management, in our mind.

Please keep in mind, though, we have and will always make use of index funds in asset classes we feel are cheap, so we are not dogmatic regarding the active versus passive debate. Like a good tracker, we are relentlessly remaining fluid and attentive to the signals the market sends us. This “connected” state logically leads to the African value called “Ubuntu”, which means “I am because we are”. To paraphrase Boyd Varty, we experience the deepest parts of life because of our relationship with others. To that end, our relationship with you mirrors the values of Ubuntu and is deeply significant to us. Please contact us with any questions or stories of your relentless pursuits.

General Compliance Disclosures

Statements made via this letter are the opinions of Creative Financial Group (“CFG”) and its advisors, and are not to be construed as guarantees, warranties or predictions of future events, portfolio allocations, portfolio results, investment returns, or other outcomes. None of the information contained is intended as a solicitation or offer to purchase or sell a specific security, mutual fund, bond, or any other investment. Readers should not assume that the considerations, suggestions, or recommendations will be profitable, suitable to their circumstances or that future investment and/or portfolio performance will be profitable or favorable. Past performance of indices, mutual funds, or actual portfolios does not guarantee future results. Future results may differ significantly from the past due to materially different economic and market conditions; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.

Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank.

Investment products and services provided by Synovus are offered through Synovus Securities, Inc. (“SSI”), Synovus Trust Company, N.A. (“STC”), GLOBALT, a separately identifiable division of STC and Creative Financial Group, a division of SSI. Trust services for Synovus are provided by Synovus Trust Company, N.A. The registered broker-dealer offering brokerage products for Synovus is Synovus Securities, Inc., member FINRA/SIPC. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested.
Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank and Synovus Trust. Synovus Trust Company, N.A. is a subsidiary of Synovus Bank.

Pursuant to rules adopted by the U.S. Securities and Exchange Commission governing federally registered investment advisors, we request that you take time to compare your account balances and statements issued by National Financial Services, who acts as the custodian for your account(s). We request you contact us immediately if you do not receive these statements or if the values reflected are materially different.

Cost basis reporting

If you buy and sell a security in a taxable account on or after the effective date, NFS will report cost basis for the sold security to you and the IRS on Form 1099-B. If you have a mix of covered and uncovered positions in the same security, NFS will report cost basis to you and the IRS for any covered position that is sold. NFS will apply the FIFO (First In, First Out) default method unless you inform us of a different method. Your cost basis method for all transactions must be final by settlement date. If you choose to change the default method, you can do so by notifying your Financial Consultant.

Use of Indexes

iThe investment return and style information and comparisons employ a variety of popular indices, and the index contents and strategies are the property of their respective companies (e.g., Dow Jones, Standard & Poor’s, Morningstar, Barclay Capital, Russell). Although the data is believed to be reliable, CFG makes no warranty with respect to the contents, accuracy, completeness, timeliness, suitability, or reliability of the information, which is represented here for informational use only and should not be considered investment advice or recommendation. None of the indices can be invested directly, and the return figures for these various securities indices are reported without management fees, trading costs, or other expenses subtracted from the returns, and are shown on a total return basis that assumes reinvestment of applicable capital gains and dividends. Components of indices may change over time. Small capitalization stocks are represented by the Russell 2000 Index. Mid Capitalization stocks are represented by the S&P Mid Cap 400 Index. Foreign stocks are represented by the MSCI EAFE Index and emerging markets are represented by the MSCI Emerging Markets Index.

Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank. You can obtain more information about Synovus Securities, Inc. and its Registered Representatives by accessing BrokerCheck